DPRK ECONOMY: EXPERT SAYS THAT BDA FREEZE POSES

C O N F I D E N T I A L SEOUL 002010

SIPDIS

SIPDIS

STATE FOR EAP/K, EAP/CM AND EB/ESC
HONG KONG FOR USSS
NSC FOR CHA
TREASURY FOR FINCEN

E.O. 12958: DECL: UPON KOREAN REUNIFICATION
TAGS: EFIN ECON PREL KS KN
SUBJECT: DPRK ECONOMY: EXPERT SAYS THAT BDA FREEZE POSES
BANKING DIFFICULTIES

REF: A. ULAAN BAATAR 139

B. ULAAN BAATAR 155

Classified By: EconMinCouns Kurt Tong for reasons 1.5 (b,d)

SUMMARY
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1. (C) The General Manager of North Korea's Daedong Credit
Bank, a British national, complained to the Embassy that
actions taken by financial authorities in Mongolia and
elsewhere in the aftermath of U.S. defensive measures against
Banco Delta Asia are complicating the conduct of legitimate
financial tranactions on behalf of North Korean businesses.
The bank executive offered to "open his books" for inspection
by the United States. He also said that even though Golomt
Bank eventually certified that there was no counterfeit
currency among cash seized at the bank earlier this year by
Mongolian officials, his DPRK partners will not permit him to
conduct any more business with Golomt. Having spent some ten
years doing business in the DPRK, the executive said that
life in North Korea is much changed from a decade ago. End
Summary.

LEFT IN THE COLD IN MONGOLIA
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2. (C) EconOff met with Daedong Credit Bank (DCB) General
Manager Nigel Cowie and discussed the recent seizure of his
bank's cash in Mongolia (ref A). We also discussed the
effect of the Banco Delta Asia (BDA) asset freeze on his
bank, and the changing situation in the DPRK.


3. (C) Cowie's version of the February 21 seizure of USD 1
million and JPY 20 million tracked with reftels. According
to Cowie, although the couriers were carrying DPRK diplomatic
passports, they were DCB employees, seconded from the DPRK
Daesong Bank, as are all five of his North Korean employees.
The custom of couriers carrying cash while using diplomatic
travel documents is one common to North Korean banking
concerns, according to Cowie. Where things went wrong in
Ulaan Baatar is that the couriers -- one of them on his first
trip outside the DPRK -- allowed themselves to be separated
from the cash. Following that misstep, Cowie told us, the
two couriers remained overnight on the front steps of the
building where the cash was initially inspected (in the
middle of a Mongolian winter) in order to remain close to the
cash.


4. (C) The Mongolian government eventually cleared the cash
in question (ref B),and the money was indeed deposited into
the Golomt Bank. DCB and Golomt maintain their correspondent
relationship, but as a result of the incident Cowie's DPRK
partner will not allow DCB to conduct transactions with the
Mongolian bank again. Cowie suspects that this decision to
shun Golomt is partly due to the embarrassment caused by the
seizure of the cash, and partly due to DPRK fears that
Mongolian officials might seize a subsequent shipment of cash.

DAEDONG CREDIT BANK FEELS PINCH FROM BDA SQUEEZE
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5. (C) According to Cowie, USD 6 million of the USD 24
million frozen in Banco Delta Asia's accounts belongs to DCB
customers. The largest DCB customer affected by the freeze
is the North Korean branch of British American Tobacco. He
speculated that most of the remaining frozen funds also
belong to a handful of BDA's correspondent banks -- all
legitimate in his opinion. Cowie asserted that a deposit of
more than one million (in cash),made by DCB just before
Treasury's September 15 announcement, had not yet been
credited to DCB's accounts. His sources reportedly told
Cowie that the deposit was still segregated from the general
cash holdings of BDA. Cowie told us that he would check
whether DCB made a list of serial numbers for the currency
shipped to BDA.


6. (C) The BDA freeze has severely constrained his bank's
operating capital, according to Cowie. DCB notified its

Pyongyang-based customers affected by the BDA freeze
immediately and they have "all been very understanding."

"CHECK MY BOOKS, PLEASE..."
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7. (C) Cowie and a group of investors jointly own DCB with
North Korea's Daesong Bank, in a 70-30 split favoring Cowie's
group. The DPRK authorities permit DCB to maintain accounts
only for foreign customers; no state-owned companies or
government offices may bank with DCB. Most of the hard
currency deposits made at DCB come from cash sales of
commodities by foreign firms or individuals based in North
Korea. Cowie expressed consternation at the bind his bank is
in due to the BDA action. He expressed confidence that DCB
is doing nothing wrong, and offered to "open his books" for
inspection by the United States. Post has electronic
versions of a speech and a presentation Cowie has delivered.
Please advise if we should forward these e-documents.


8. (C) The banker confirmed that despite the DPRK's official
use of Euros, there is always a shortage of Euros in North
Korea; the more pervasive currency is the U.S. dollar.
Contrary to reports of the superior nature of "Supernotes"
and the common view that the counterfeits are difficult to
detect, Cowie claimed that his tellers could spot bogus notes
with little difficulty. When a counterfeited note is
discovered, DCB simply rejects the note and does not notify
any DPRK authority, he told us. Cowie also complained that
he was having difficulty in obtaining updated sensing devices
for the bank's cash-counting machines. Because of the bank's
Pyongyang address, Cowie implied that he was obtaining
updated counterfeit-detecting technology though a circuitous
route.

"LIFE IS GOOD..."
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9. (SBU) Formerly an employee of Honk Kong and Shanghai
Banking Corporation, Cowie has lived and worked in South and
North Korea for more than fifteen years. Having spent more
than ten years doing business in the DPRK, the executive said
that life in North Korea is much changed from a decade ago.
Even so, Cowie said he can only handle the stresses of living
and working in the DPRK -- even though he lives in the
diplomatic compound and DCB is located in a major Pyongyang
hotel -- for a few months at a time. Following each stint in
the DPRK, he returns to his family in Seoul for an extended
rest, up to six weeks at a time.


10. (SBU) Although he told us that life in the DPRK was more
relaxed than when he first started working there, he still
stole furtive glances over his shoulder and hesitated to say
Kim Jong-il's name directly -- all this despite our meeting
in a crowded restaurant in downtown Seoul.

THE BROADER CONTEXT OF BDA
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11. (C) Cowie said that he is speaking to journalists and
government officials at every opportunity out of his belief
that clearing up BDA's name will also improve the situation
for his own bank. In his opinion, the money tied up by the
BDA freeze has no direct impact on any of North Korea's
senior officials. In fact, he claimed (without offering any
specifics) that their money is in European banks. The reason
North Korean officials are using the unfreezing of BDA
assests as a precondition to returning to the Six Party
Talks, according to Cowie, is that they believe once the
review of BDA accounts has been completed by the U.S.
government, banks around the world will once again open their
services to North Korean banks and individuals.
VERSHBOW